Financial Management for Project Managers Performance Measurement in Accounting 5 — Questions and Answers
Question 1: A project manager calculates a Variance at Completion (VAC) of -$30,000. What is the correct interpretation?
- The project is forecast to finish $30,000 over budget (Correct answer)
- The project is forecast to finish $30,000 under budget
- The project is currently $30,000 behind schedule
- The project needs $30,000 more in management reserve
Correct answer: The project is forecast to finish $30,000 over budget
VAC = BAC - EAC; a negative VAC means EAC exceeds BAC, forecasting a cost overrun at project completion.
Question 2: Which performance reporting technique compares actual results to a rolling forecast rather than a fixed baseline?
- Forecast variance analysis (Correct answer)
- Earned Value Analysis
- Trend analysis
- Baseline deviation reporting
Correct answer: Forecast variance analysis
Forecast variance analysis measures actual performance against a continuously updated forecast rather than the original plan.
Question 3: A construction project uses the 'units completed' EVM technique. If 400 of 1,000 planned units are finished and the budget is $100,000, what is the Earned Value?
- $40,000 (Correct answer)
- $100,000
- $60,000
- $400
Correct answer: $40,000
EV = (Units Completed / Total Units) × BAC = (400 / 1,000) × $100,000 = $40,000.
Question 4: A project manager is computing a project's break-even point. Which variable is NOT needed for this calculation?
- Net Present Value (Correct answer)
- Fixed costs
- Variable cost per unit
- Selling price per unit
Correct answer: Net Present Value
Break-even point = Fixed Costs / (Price - Variable Cost); NPV is not part of the break-even formula.
Question 5: In the context of project financial control, what is 'cost aggregation'?
- Summing cost estimates of work packages to higher WBS levels to establish the cost baseline (Correct answer)
- Combining multiple project budgets into a program budget
- Totaling all actual costs incurred across a reporting period
- Adding contingency reserve to individual work packages
Correct answer: Summing cost estimates of work packages to higher WBS levels to establish the cost baseline
Cost aggregation rolls up work package estimates through control accounts to the project level to form the cost baseline.
Question 6: A project used $180,000 in actual costs but planned to spend $200,000 for the same period. The EV for work completed is $160,000. Which statement correctly describes performance?
- The project is both behind schedule and over budget (Correct answer)
- The project is ahead of schedule and under budget
- The project is behind schedule but under budget
- The project is ahead of schedule but over budget
Correct answer: The project is both behind schedule and over budget
SV = EV - PV = $160K - $200K = -$40K (behind schedule); CV = EV - AC = $160K - $180K = -$20K (over budget).
Question 7: When a project manager applies the 'weighted milestone' EVM technique, Earned Value is credited:
- At defined milestones according to pre-assigned budget weights (Correct answer)
- Equally at each reporting period regardless of milestones
- Only when the entire work package is 100% complete
- Proportionally based on actual hours spent
Correct answer: At defined milestones according to pre-assigned budget weights
Weighted milestones assign specific budget percentages to key deliverables; EV is earned when each milestone is achieved.
Financial Management for Project Managers Performance Measurement in Accounting 5
A project manager calculates a Variance at Completion (VAC) of -$30,000.
What is the correct interpretation?